Payday Loan Myths
Cash advance loans are unregulated.
Not true! Numerous states have very specific regulations concerning short-term loans.
These regulatory provisions contain legal consumer guides that monitor and control
the maximum and minimum amounts received through cash advances, as well as time
constraints and interest rate caps. State boards have also helped in creating and
maintaining payday loan regulations.
According to the Truth In Lending Act, short-term lenders are legally required
to clearly outline all fees and disclose all rates and to the customer. If you find
that a local or web-based cash advance business is not adhering to your state regulations,
please contact your local police department.
If I take out a short-term loan,
I will be trapped in a cycle of debt.
Many people have a negative image of short-term loans, but most of the concern is
for those that approach cash advance irresponsibly.
It's important to understand that a short-term cash advance is not meant to function
as a long term credit account or bank loan. A short-term loan is given under the
agreement that it will be paid off on the applicant’s next payday (hence the term
Regulations allow cash advance payment periods to be extended, but not indefinitely.
The limited payback period ensures that applicants do not get stuck in long term,
high interest rate loans.
Cash advances take advantage of the poor,
minorities and military personnel.
Cash advances are an alternative financial service chosen each day by households
without access to bank loans or credit cards. And when a broken down car can lead
to loss of employment or a bounced rent check can lead to eviction, these services
can mean the difference between staying afloat and losing everything.
Short-term cash advance loans made by reputable lenders do not attempt to take advantage
of anyone. These loans are marketed toward subprime clients without a distinction
in employment, race or culture. The most common short-term borrower is middle-income,
under 45 years old, currently employed and has an active checking account.
Payday loans interest rates are too high.
A long-term credit card or bank loan averages 7 percent interest over several years
or longer. A short-term cash advance can average 15 to 30 percent interest over
a maximum of three weeks. Incurring a series of bank overdraft fees, on the other
hand, can quickly escalate into an implied interest rate much steeper than that
charged by payday lenders.
This difference in interest rates is not because the short-term lender is trying
to take advantage of emergencies -- it's because they assume a greater risk at the
same profit level as other financial institutions.
Payday loan companies are predatory
lenders or “loan sharks.”
Short-term payday loans fill a necessary role in the economic world. At first glance,
the interest rates seem high, but it is important to understand that payday loans
are NOT long-term debt solutions.
There are no annual or hidden fees. Cash advances are not meant for persons who
afford to remit payment on their next payday. These loans are designed for hard-working
adults with an immediate financial emergency that cannot be satisfied through bank
or union loans.
A cash advance will affect my credit score.
While frequent credit checks can potentially lower your score, cash advance loans
do not require a standard credit check. You can rest easy knowing that your emergency
need will be met while leaving your credit score intact.